Thursday, 20 April 2017

Trump rally: is going to stop?

US President Donald Trump has been working in Washington for quite some time now, however, there are still no clear signs of what his plans for the economy really are and when or how he intends to accomplish them. In other words, we are facing strong uncertainty, again.
So far, we know that Mr. Trump wants three basic things: higher fiscal spending, lower taxes and deregulation on several sectors. But from all that, there were no serious achievements since he moved to the White House in January. Instead, he seems more worried about replacing Obamacare with his own American Health Care Act (AHCA), as well as showing off US military power to Syria’s Bashar al-Assad and North Korea’s Kim Jong-Un.
International relations and national defense are serious matters, nobody is saying the opposite. But US equity markets have been on a rally since the November election in 2016 based on his economic promises and well… the clock is ticking faster and faster before participants lose hope, sending stocks into an ugly downward correction.
Despite Trump’s constant reassurance that he will in fact unleash the potential of the American economy, bringing back capital and jobs from those who stole them (AKA Mexico and China?), investors are just not buying it anymore.
After a completely unexpected shift in international relations, with the sending of US veals to the Korean peninsula or the firing of “the mother of all bombs” in Afghanistan or the destruction of a Syrian airbase, the new administration has made clear that priorities have now changed.
And we are facing two scenarios at this time. A rebound of stock markets or a plunge that could gain momentum and become more of a threat than a regular correction.

Rebound
Even with all internal and external scandals that currently surround Trump, market players are sticking to their bullish positions. And that means a lot. It means “we still trust you” or... “we are expecting a rebound soon”. Want to take this side? Your call.

Drawdown
Another side of the story is the drawdown scenario. If geopolitical tensions scalate further or Trump continues to avoid economic promises for too long, disappointment will weigh heavily on market sentiment and a strong downward correction could be on its way.

Hot Topics To Keep In Mind

Health Care Reform - Small chances to be accomplished. Trump has to find a way to negotiate with its own GOP leadership and come together on the same side. Otherwise, no healthcare or any other reform will ever pass Congress.

Tax Reform - Uncertainty, better to wait until August. However, Treasury Secretary Steven Mnuchin said it might be delayed due to the healthcare reform.

Deregulation measures - Not too difficult to move forward with this point. It’s likely Trump will work on this issue in the near term.